HARP approved first loan with a Subordination: Subordinating lender approval is not always granted.

To the surprise of many lending professionals becoming familiar with the newly released guidelines for what many have coined as HARP 2.0, they are learning that the subordinating lender may not necessarily approve the subordination. While declines are not the norm it can happen and derail the refinance transaction placing further burden on borrowers who are trying to benefit from historic low interest rates.

One of the most common responses from a loan officer who learns that the subordinating lender has declined to subordinate to a new first loan approved under the new HARP 2.0 program is “you can’t be serious, they participate in the HARP program so they should approve it!” The answer is not necessarily.

Subordinating Lender Defined & HARP participation

Lenders that have provided homeowners with Home Equity Lines of Credit are commonly referred to as a second lienholder. They are in second lien position behind the homeowner’s primary lender (which could also be the same lender). The lender is in a subordinate position and is the “Subordinating Lender.” While the subordinating lender participates in the HARP program they do not “automatically” approve the subordination.

Because the subordinating lender is in a subordinate position they have to protect their financial interest in a market where declining home values have eroded the equity of the property. Everyone knows that lenders Home Equity Lines are getting wiped out with short sales and foreclosures. Underwriting by the subordinating lender is required and the homeowner and property must meet their guidelines.

Subordinating lender underwriting guidelines

The subordinating lender will require the homeowner to meet the lender’s underwriting guideline such as DTI (debt-to-income ratios), CLTV (cumulative loan to value: the ratio of the loans secured by the property and the value of the property, FICO credit scores, appraisal and other requirements.

From our experience (Note: our company does not underwrite the subordination) most subordinations that are declined are due to high debt to income ratios over 50-55% coupled with poor credit scores or other factors. It is much more common for a straight approval or a conditional approval. In a conditional approval, it is possible that the subordinating lender may require the existing line of credit to be reduced to the outstanding balance or reducing the new first lender’s loan amount to make the CTLV’s comply with the subordinating lender guidelines. Sometimes this means the borrower may have to come to closing with funds they were not planning for.

Many lenders do have DTI caps of 50-55% and will not approve a subordination where the borrowers debit to income exceeds that level under any circumstances. Some lenders also allow up to a maximum of $5000.00 or 2-3% in allowable closing costs to be rolled into the new loan over payoff. For example, if your existing first loan payoff is $100,000 your new first loan cannot be higher than $105,000.

The good news is that the majority of subordination requests are approved.

Six tips & expectations to survive the Bank of America subordination process:

1) Prepare clients for a long underwriting period.

It would not hurt to go to your local grocer or bathroom cabinet to have something at the ready to sooth your headache or a squeeze ball at the ready for your frustration. Having some James Taylor on in the background might calm your spirits.

2) Do not lock your loan for under 30 days.

3) Pay Bank of America off

If there is enough equity, seriously consider paying off the HELOC or 2nd mortgage with Bank of America and opening another line with a different lender after closing to prevent having to deal with a Bank of America Subordinations.

4) Turn times published are unrealistic at best.

Their published 10 day underwriting turn time is just flat out not realistic. In fact, it is outright false in almost every case where we processed a subordination through our escrow firm or here at Nationwide Subordinations. For your convenience, on our homepage in the middle left section, we publish near live turn times every week for several lenders. This should help you prepare for a realistic time frame.

Why is their published turn time unrealistic? Here’s a brief sampling of our own experiences this Fall with pipeline files at the Bank of America Subordination department:

Bank of America Subordination dept. outright lost an inbound, signed for, Fed Ex package with a cashiers check (later accounted for nearly 12 days after they signed for it). Several customer service representatives could not even provide a solution for whom to research the problem.

Bank of America Subordination department routinely takes DAYS for their processors to provide documentation of conditions that were provided verbally over the phone by customer service representatives that have literally no experience in lending other than reading internal notes to you (from their computer monitor) over the phone.

Bank of America customer service representatives have provided erroneous information causing a homeowner, processor and closing Attorney to question the progress of their subordination.

Bank of America subordination department asks for duplicate documents already provided but mysteriously is not part of the package initially provided.

We were asked by Bank of America customer service/subordination staff to fax the same document to three different bank associates over a two week period after which it took days for them to log it in their system. Once they logged the fax in their system, they started their 10 days underwriting period three weeks after they have received the subordination request package!

Having a file in “escalation” status doe s not mean it will be underwritten the same or next day.

Not once has Bank of America followed our instructions for contacting us when approval has been made nor providing Fed Ex tracking of the outbound subordination. Not once.

4) Loan amount increase or lender change?

Please say to yourself 10 times in a row, “I promise to notify my processor and Bank of America BEFORE the subordination is shipped.” If you happen to need an amended Subordination after it has been shipped, prepare for more time and money to be spent. It will not happen instantaneously.

5) How’s your phone skills?

If you decide to process and track your own subordination be prepared to spend at least 20 minutes or more on the phone per day tracking your subordination status. Dont’ wait for Bank of America to contact you—it will not happen. It is not uncommon for our company to be on the line with Bank of America on a file for anywhere from 30 minutes to over an hour. Sometimes we are disconnected after a long hold. This is primarily the #1 reason people elect to use our service vs. going the DIY route. They don’t have time or patience.

6) You will almost never be in contact with a Bank of America subordination staff or underwriter on a specific file unless they happen to contact you via e-mail. And then, do not expect a response to any of your questions quickly. In many cases, responses to a question will not occur until the next business day which can result in costly delays to your transaction.

Bonus: 7) Refer to the blog posts by Bank of America customers and lending professionals regarding their experiences. Note: we could not publish the majority due to “salty” or “sailor” language.

Bonus: 8) When all else fails, use social media and tweet for help: @BofA_help. At least you will be responded to with the nicest customer service reps that can do virtually nothing to help you other than providing you with some of the information you already have.

As of August 1st, 2011, Wells Fargo has increased their lender fee by $50.00 We wanted to get this news out to all our customers because there are scores of lending professionals, Title Insurance companies, Attorneys and Escrow Firms that are unaware of this change.

Getting your subordination request approved is our number one priority. One of the most satisfying results of our service and work behind the scenes is helping our customers (the homeowner and lending or closing professional) work through a declined subordination and turning it into an approval. Our success rate is nearly 50%, which is very respectable in light of struggling housing markets nationwide.

During the last week of June we worked together with Excel Funding in California to get a declined file approved where the lender was PNC Bank. It was successfully approved and delivered on July 12th.

– Brenda Vandenbrink, Nationwide Subordinations Support Staff

Working together in a collaborative manner is the ingredient and secret “sauce” that our customers appreciate the most. Our testimonials are the real deal and are never solicited. Ever.

Most lenders allow the ability to make changes during the underwriting process that can include changing the lender and loan amounts. But what about after the subordination is already completed and shipped to the closing agent, Title Company or lender?

For PNC Bank Subordination Requests or former National City loans (now handled by PNC Bank) you can amend the subordination within 30 days of the initial request for subordination. If changes to the lender or an increase in loan amount is needed and you need a re-draw or amended subordination to reflect those changes after the 30 day period, then a new request and additional underwriting fee will apply.

In summary, if you need an amended subordination from PNC the following points are helpful:

We have received multiple requests for Promissory Notes that may be required as an underwriting condition for a refinance transaction that involves PNC Bank. While it is obviously best to get the Note from the borrower, if tradition holds true, most borrowers have “misplaced” it or don’t know which box it is in the cellar or attic.

Behold! We have good news. We have contacted our friends at PNC and you can receive your copies of Notes without too much trouble. It involves two steps:

1) Fax an authorization form over to PNC stating you have the borrower permission for them to release the document to you: 1-800-417-1527.

2) Call back about an hour or so later. Call 1-800-395-1983. Calling an hour or so later allows PNC’s system to update and show your authorization has been received. The customer service staff at PNC can see your authorization and will then forward you a copy of the Note.

Wells Fargo has indicated that they are prioritizing subordination files based upon expiration of interest rate lock periods. We are not sure if that is a good thing or a bad thing.

Pro’s- it means that if you have a tight deadline due to an interest rate lock that is expiring in a few days you might get priority over other subordinations.

Con’s – for those that plan ahead and are managing refinance transactions well, it could mean that you may or may not receive an approval when you should because of another file that could bump yours by a day or two. Just because you have a longer expiration period does not mean you don’t “intend” to close well before the lock expires.

UPDATE: October 14,2010: Turn times have been expanded to 20 business days or about 3-4 weeks, generally. We have had them back substantially sooner (days) vs. weeks, but you must plan for the entire period.

UPDATE: August 24th, 2010.

PNC turn-times typically take about 7-15 days after the file is in place with an PNC underwriter. This is usually after about 2-3 business days has already passed with the file placed at PNC.

Please allow for the full turn-time. Once August arrived we have noticed a slowing down which is a direct result of the sheer number of subordination requests they are receiving. Word as of this morning with PNC Staff there were approx. 1,700 open subordination files at PNC. We completely understand how frustrating this can be. We are on the phone with PNC (and on hold) numerous times a day.

The dramatic rise in refinance activity over the last 5 -6 weeks has had an impact on any subordination turn time from any lender, whether it is Wells Fargo, Bank of America or PNC. You will need to adjust your time-frame accordingly for closings and be prepared to extend your interest rate lock periods.

I am in contact tracking all our files in the pipeline at PNC heavily. For our east coast clients, I have been tracking our files as early at 6:30am PST (note we don’t open until 9am) so we have been doing all we can to encourage PNC staff to move forward with decisions.

Being that we process scores of subordinations for clients and we are kind of on the front lines of it all, I just thought we would throw out a quick observation as we head toward the stress of month end closings and as the number of calls and e-mails normally skyrocket checking on the status of a subordination.

The thing that is kind of strange is how loan officers make subtle remarks about other subordination units from other large banks. For example:

One huge bank loan officer making a remark about another huge bank subordination unit taking so long or having to jump through hoops to get one approved. Or, another remarking about the turn-time for another regional bank or Credit Union. It is sort of ironic.

Hey friends! The turn time and resulting approval, no matter how big your bank or credit union is, all depends upon the underwriting guidelines for the specific borrower at hand, whether the loan is a HARP/HASP/HAMP eligible program and the existing work load. I say give everyone a little break. Refinancing is again dominating purchase business due to interest rates dropping. Everyone can chime in on the blogs about whether that is a good sign for the economy and housing sector or not.

We look forward to a great week coming up and hope everyone has had a great summer! School is around the corner!

We have just listed the top frequently asked questions to assist our customers. Please view them on a page dedicated answering most questions about ordering, expectations, turn-around-time, guidelines, billing and donating to our tip-jar for our trip to Cancun. Ok, the trip to Cancun is a dream. Someday. =)